Author writes for Shadow Foundr: don’t just follow the crowd, follow experienced investors. Are you thinking about investing some of your hard-earned money in a company you’ve heard great things about? You’ve checked out the crowd funding site and the idea looks great. It’s marketable and is a new idea that serves a specific need. But, what do you really know about it?
Before you hand over your cash as an investment in the company, there are some questions that need answers. These ten questions are those you should always ask an entrepreneur before investing in their idea.
- What problem are you solving? What gap are you trying to fill with your idea? If that idea is unique and could work, you can feel good about investing. If not, it’s time to look at another opportunity.
- What are your reasons?The idea behind this question is to find out if the person is passionate about their project or simply want to make money. If there’s no passion, you might not want to invest.
- What about the competition?If there’s a similar idea out there, what makes this idea different? If there isn’t a clear answer to this question, the business developer needs to do a little more work before you invest with them.
- What are the risks?You need to ask what things could get in the way of the business’ success. If the person can’t answer this question, move on to another investment opportunity.
- How much money do you need?You want to make sure that the person you’re investing with has a plan for revenue and a projection of how much it might be. You might also want to ask what happens when the funding is gone. It doesn’t make financial sense to invest in a business that has no financial plan for the future. There is nothing wrong in investors asking to see a business plan or a sales/income forecast.
- How much have you invested so far?This lets you see whether the person is expecting investors to take all the risks and if they are willing to risk it themselves. Be cautious of investing with someone who hasn’t put any of their own money into the endeavour.
- Who is on your team?The right people can make or break the success of a business opportunity so it pays to know who is working on the idea. Ask about the skills and assets of the team before you hand over any money.
- What’s your track record?Find out whether the person has ever successfully grown a business before. If not, do they have the passion and team to back them up and make sure it happens?
- Are you working on this full time?You want to make sure the person you are investing in is putting in a lot of time to make the prospect a success. If the person isn’t putting in full time hours on their business, you might want to think twice before you invest in them.
- What’s your exit strategy?This is important because it helps you see if you will be able to get a return on your investment if the opportunity doesn’t work out. You need to see a well thought out plan as to how the person will return your investment if need be.
We always ask these questions before investing in a new start-up company and you should do the same before you invest. More here.
